The outlook for the Nordics is fine

The outlook for the Nordic economies is still fine though clear signs have now emerged of an international slowdown. A Nordic advantage is the good starting point for public finances in all the Nordic countries ahead of the Big Recession. This means that the need for radical fiscal policy austerity measures is much smaller here than in most other countries.

The Danish economy has returned to the growth path. The improvement has been aided by consumers now emerging from the shadow of the financial crisis and starting to loosen their purse strings again after being bolstered by income tax cuts and record-low interest rates. Moreover, exporters have finally started to benefit from the decent global upswing. And public spending, while still making a positive contribution to growth, is passing the "growth baton" to the private sector. The labour market situation has improved in 2010, but we do not expect the unemployment curve to finally break until early 2011. We see a modest improvement of the housing market with increasing trading activity and rising prices underpinned by the low level of interest rates.

The Swedish economy started to recover in mid-2009 and gained further momentum in 2010. GDP is seen growing by more than 4%. The export industry has benefitted from the improvement in global trade. Even if the international economy slows down, domestic demand in Sweden will contribute to sustaining growth. Industrial production is rising and the order inflow indicates that the upswing will continue. The labour market is improving and public finances have strengthened along with rising employment and is heading for balance as early as this year. The household sector is in good shape and car sales have surged. Inflation is subdued, but should pick up slightly in the next few years. The Riksbank started to hike the repo rate in July and further hikes are in the pipeline. We expect the repo rate to reach 1.25% at the end of 2010 and 3% in two years' time.

The Norwegian economy has disappointed so far in 2010 due to the households which seem to have been more prone to save rather than spend than we thought. Our view on the economy in 2011 is only marginally changed, and we still expect a modest upswing. The smaller-than-expected pick-up in interest rates and higher-than-expected oil investment will to a great extent compensate for the more cautious-than-expected consumer behaviour. In 2012 we see growth in Norway accelerating sharply, driven by stronger global growth and higher oil prices. Any pick-up in Norwegian interest rates should be very modest, but they will begin to head higher before their Euro-area equivalents, and this should underpin a stronger NOK.

After a slow start in 2010, the Finnish economy began to gain momentum in the spring. Also, the outlook for the rest of the year is favourable. Next year, growth will begin to slow down relative to the brisk figures of H2 2010. In 2011, average GDP growth will be a little slower than this year. On the whole,the trend in Finnish economy will be reasonably favourable in the next few years. Despite the broadness of the past recession, its impact has been fairly mild. GDP growth fell sharply, but the level of unemployment remained much lower than feared. Moreover, the general government deficit probably stayed below the EU's 3% target, and next year the general government finances will again be close to balancing.